Potentially lucrative export markets require a careful approach, Silver Fern Farms says. Tim Fulton looks at the pros and cons.
Care is required in costly new markets like China’s.
China’s GDP is growing year-on-year between 6% and 8%.
But anyone weighing up investment in new markets should consider the cost of entry and the likely return on the spend, Silver Fern Farms chief customer officer Mark Adam told the company’s recent farmer conference.
Silver Fern Farms shipped $2.5 million of product sold to about 60 countries but operating costs were high and entering new markets was expensive, he said.
The Fast-Moving Consumer Goods (FMCG) trade generally expected that entry into a market and category wouldn’t be profitable for at least three years.
“You’d actually expect to lose a lot of money in the first three years to establish a brand. So size of market is a double-edged sword,” Adam said.
A marketer would probably spend $2m on the launch of a product in New Zealand in the first year and tens of millions if doing it in the United Kingdom.
China, being larger, more complex and unfamiliar, was among the most expensive of all new markets. Chinese beef consumption per capita was about 6kg, so the question was how to raise awareness of unfamiliar brands in a hesitant market.
In comparison, United States beef consumption was an average of 26kg per person. The country had a strong preference for beef but it was also a very competitive place to do business.
The US had a Gross Domestic Product (GDP) of about $21 trillion, compared to China’s $14 trillion. But on per capita value, the US was about $63,000 compared to China’s $9000.
An exporter had to be clear what their in-market partners wanted and could do.
Some customers were fantastic importers and traders, some were very good at secondary manufacturing, some wanted to expand their businesses, while others were happy with the status quo.
“We need to go in and have conversations with all those customers and say ‘what is your plan to grow? What is your plan to add value; how are you going to access the consumer more accurately and in a timely manner to make sure our products are in a competitive positioning’.”
Silver Fern Farms was acutely aware that it needed to increase the margin it returned to its farmer suppliers and shareholders.
An Ebit margin level of 1-2% in a food business turning over $2.5 billion of revenue was not sustainable “if we want to be a consumer-led, customer-led company”.
As a nation, NZ’s point of difference as a meat supplier was lean, grass-fed product, he said.
A growing group of American consumers would pay a premium for grass-fed over grain-fed, giving retailers a financial fillip of about 10c.
In another mature market, Japan, diet-conscious consumers were turning toward NZ-type beef.
“Because of the ageing population, people need to have protein in their diet to keep strong and healthy but they need to reduce their fat levels.”
Consumption of marbled Wagyu was falling and lean-beef consumption was rising.
But markets weren’t falling into NZ’s lap and it didn’t help that NZ meat processors continued to under-cut each other for a slice of the grass-fed, lean meat market.
“We shouldn’t be competing against other grass-fed processors, out in the market on price. It’s just so self-defeating; we in New Zealand and Silver Fern Farms have a fantastic story. To go into a market and have someone else from
New Zealand undercutting the price is just mind-blowingly stupid,” Adam said.
